1031 Tax Deferred Exchange

The purpose of an exchange is to defer the payment of taxes on some or all of the capital gain realized on the property to be exchanged.

WHAT ARE THE KEY ELEMENTS OF AN EXCHANGE?

A.

B.

C.
Owner/Exchangor cannot have actual or constructive receipt of the sale proceeds.

Utilize a Qualified Intermediary prior to the close of sale of the Relinquished Property.

Replacement Property must be identified in writing to the Qualified Intermediary within 45 days of the closing of the Relinquished Property. When identifying Replacement Property one of the following rules must be followed:
1.


2.



3.
Three-Property Rule: Up to three properties of any value may be identified. The Exchangor can purchase one, or all three properties.

Two Hundred Percent Rule: Any number of properties can be identified so long as the aggregate fair market value of all properties identified does not exceed 200% of the sale price of the Relinquished Property.

Ninety Five Percent Rule: If both above rules are exceeded in the number and value of the properties identified, it will be considered valid if at the end of the exchange, the Exchangor has succeeded in acquiring properties worth an aggregate of at least 95% of the fair market value of all of the properties identified.
D.
The transaction must be completed by the earlier of (i) 180 days from the date of the first closing or (ii) the due date of the exchangor's tax return (including extensions) for the year the Relinquished Property was sold.

The IRS, through Section 1031 of the Internal Revenue Code, recognizes that an exchange of like-kind property is not a taxable event.

"Sec. 1031 (a) – Nonrecognition of gain or loss from exchanges solely in kind – (1) In general, no gain or loss shall be recognized on the exchange property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or investment."

Federal Standard Abstract through its associated company, Federal Standard Funding LLC can be appointed as the Qualified Intermediary. Both companies are bonded by Hartford Insurance Group.

Our tax adviser can also assist and answer questions you may have:

SAMUEL S. SONTAG, CPA, MBA, JD, LLM (Taxation) – OF CHAIFETZ & SCHREIBER, PC.

Sam has over 22 years of experience in tax consulting, planning and structuring of complex transactions for his clients in a broad range of industries. He has taught taxation and accounting at public and private colleges in New York City (Baruch College, Lehman College, College of Staten Island, Fordham University) and has lectured before community and industry groups. He is a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants. He is admitted to practice in New York State.

For more information, please contact Rebecca Chong of the Corporate Office of Federal Standard Abstract at (212) 343-2282.